Höegh LNG Partners (No_rec, TP: USD16.00) - Discontinuing coverage

We have discontinued coverage of Hoegh LNG Partners. Our last published recommendation, target price and estimates should no longer be relied upon

SHIPPING: Phase 1 could increase tanker demand by more than 2%

In its Phase 1 trade document, China pledges to increase US exports of energy products by a total amount of USD18.5bn in 2020, then USD33.9bn, reaching USD52.4bn by 2021. Energy is defined as LNG, crude oil, refined products (including LPG) and coal. The value of US exports of crude, LNG and LPG in 2017 was USD6.7bn, of which two-thirds was crude. Assuming crude will account for 50% of the increment, US exports to China by 2021 could rise to 1.3mbpd. The pure substitution effect should see addit...

Shipping Summary (DNB Markets) - Decarbonisation could extend cycle (4...

Wallenius Wilhelmsen, Stolt-Nielsen and Flex LNG are our top picks for 2020, as our LPG and Tankers stocks have upside potential of only 4–7%. For further upside potential there, you need to discount a cycle extension.

SHIPPING: Impact of phase one trade deal

In a 23 August update, we pointed out that the US-China trade war had hurt crude, LNG and LPG, and that a further escalation was likely. While the full extent is yet to be known, the “phase one” deal would positively impact dry bulk trade, and could see positive effects for container trade. Energy-related products would be positively affected if part of the USD200bn of purchases from the US that China has pledged to make, and is likely to be rewarded in further phases.

Northern Lights

Höegh LNG Partners (Hold, TP: USD16.00) - Seeking contracts for Galla...

Höegh LNG Partners delivered another set of results in line with expectations, reflecting good operational performance in Q3, although it was affected by a derivative loss in its JV partner. We believe fixing the Höegh Gallant to a long-term contract remains the highest priority for Höegh LNG, as it would remove earnings uncertainty for both companies. We have upgraded to HOLD (SELL), as we see the shares as oversold, while we reiterate our USD16 target price.

LNG SECTOR (DNB Markets) - Long-term contracts likely to be differenti...

We believe the LNG spot shipping market is as good as it gets, with rates at USD140k/day. We recommend entering long term contracts, which look to be a key share price driver in 2020, when the LNG shipping market could disappoint unless Asia’s share of US volumes picks up to 50%.

Déjà vu

LNG freight markets are up 100% in two weeks to USD125k/day for TFDE vessels, fuelled by contango in forward prices and floating storage, as key demand regions either are full on storage or experiencing import constraints. We have déjà vu from Q4 2018, when LNG rates hit USD180k/day as 30 vessels were in storage for similar reasons. In our view this is backed by current low LNG prices of USD5.6/mmBtu, which are down 50% YOY; if there was a scarcity of LNG and high import demand, LNG prices wou...

Scrubber count above 3,700

Scrubber uptake suggests more than 3,700 units on the water by end-2020, but leaves considerable room for more orders in 2020 if 2019 installations of c2,250 are any indication. We estimate 23% of HFO would be preserved with the current scrubber uptake in 2020e.

Rates on the rise, but we see risks

LNG spot rates are on the rise, up USD5k/day on Friday to USD72k/day, and we forecast a Q4 headline rate of USD130k/day. LNG prices are USD5.4/mmBtu YTD (-45% YOY) on record-high new LNG volumes combined with the top four importers reporting flat demand YOY. China and India risk being fully utilised on regas capacity in the high season and China is now storing up to reduce its dependence on LNG imports during the peak season at a time when the Russian pipeline is set to start, while Europe’s i...

LPG likely hit more than crude

We believe the volume of LPG production outages in Saudi Arabia following this past weekend’s attacks could weigh on the VLGC market as the US struggles to fill demand due to capacity issues, despite soaring oil prices which could widen the US-Asia arbitrage. For crude tankers, the available inventories in Saudi Arabia should be an adequate buffer for a production shortfall near-term, while potential US volumes could be a positive if outages are not repaired in 2–3 weeks’ time and be a pos...

Update on US-China tariffs

The US-China trade war has hurt US exports of crude, LNG, and LPG to China. In H1 2018 China imported 25% of all US crude exports, 14% of LNG, and 9% of LPG, while in H1 2019, China imported only 4% of US crude exports, 2% of LNG, and 1% of LPG. Accordingly, new tariffs on oil would have less impact as the trade has already been affected. We believe there will be a further escalation in the trade war in the next 12 months (in line with DNB Market’s macro view), hence the trade war should conti...

Potential impact of Paris Accord

We analysed the potential impact by 2040 on shipping of the IEA’s three energy mix scenarios, with 5-year intervals. If contracting stays low (2019 YTD), we see the global order book falling 35% by 2020 from already 15-year lows, but if ordering picks up, asset lifecycles will being cut by 25% to meet the Paris Agreement goals.

2020 installations up 50%

The latest data from DNV GL indicates an interest to book scrubbers for installation also beyond 2019, as June additions added 50% to 2020 installations and brought the end-2020 total to above 3,500 units. Orders are closing in on our estimates for tankers and dry bulk, but the uptake in containers since our November forecasts has been more than twice our expectations, leading to 23% of HFO demand currently being covered after IMO 2020.

Höegh LNG Partners Minor model adjustments

We have updated our estimates, due to the Q1 actuals. We do not consider these changes to be material, and we reiterate our HOLD and USD19.1 target price.